A US judge has ruled Argentina in contempt of court for its attempts to skirt his block on payments to holders of the country's restructured debt.
Federal district judge Thomas Griesa yesterday said Buenos Aires had acted illegally to avoid his orders to first pay off hedge funds that sued the country for full payment on their bonds.
He noted it is "a rare thing" for a country to be ruled in contempt in a US court, but pointed to the actions of the Argentine government to skirt his orders in the long-running case.
"The court holds and rules that those proposed steps are illegal and cannot carry on," he said.
But Griesa held off on deciding a penalty, which could amount to a USD 50,000-a-day civil fine as requested by the hedge funds.
Earlier this year Griesa effectively froze Argentina's ability to transfer funds to restructured bondholders, as long as it does not pay the holdouts in the restructuring, mainly the USD 1.3 billion in bonds held by Aurelius Capital management and NML Capital.
Because Argentina refuses to pay off the two, calling them "vulture funds", Griesa's order forced the country to default on a debt service payment to restructured bondholders at the end of July.
After that the government passed new domestic legislation aiming to transfer its bond contracts away from US jurisdiction to Argentine jurisdiction, so that they could make the payments.
And then it announced its plan to fire the official trustee for most of its debt payments, Bank of New York Mellon, which Griesa had ordered not to transfer any funds to the country's creditors.
The hedge funds then sought the contempt ruling from Griesa.
"Argentina has repeatedly and willfully violated the orders of the court. Argentina has repeatedly and willfully declared its intention to continue to violate these orders," they said in a complaint last week.
Earlier yesterday Argentina's US ambassador warned US Secretary of State John Kerry in a letter that a contempt ruling against the country would constitute "unlawful interference" by the United States in its affairs.
Such a decision "would not only fall outside the jurisdiction of said courts, but also be an unlawful interference in the domestic affairs of the Argentine Republic, triggering the international liability of the United States of America," wrote ambassador Cecilia Nahon.
